With many tour operators unsure about how Brexit will affect the Tour Operator Margin Scheme (TOMS), and guidance from HMRC leaving the matter unclear, a couple of recent cases highlight areas that may have potential implications. We’ve summarised the two Advocate General (AG) opinions released on 5 September 2018 below:
Alpenchalets is a luxury winter holidays operator and the case covered the rental of properties in Germany, Italy and Austria. Alpenchalets let these properties out in their own name, together with additional services such as cleaning, laundry etc.
Alpenchalets included the standard rate of German VAT in its TOMS calculations and submitted a claim to the German authorities stating that the VAT should have been calculated using the reduced rate. This was refused by the German tax authorities.
The stance taken by the AG was that the effect of the TOMS simplification was to create a single supply of ‘travel services’ which could comprise of just one bought-in service. On this basis, the reduced rate was held not to be available to any element of a margin scheme supply. However, the reduced rate still applies to holiday accommodation (subject to the local rules) and if that supply falls outside of TOMS, the reduced rate could apply.
Skarpa Travel is a holiday provider and the case revolved around when VAT should be accounted for using TOMS when a payment on account (POA) had been made by the customer.
Skarpa’s view was that VAT should not be accounted for when each POA was made, but rather when the final margin could be determined (allowing for further factors to be taken into account, such as final traveller numbers, exchange rates and unexpected costs) which would be some time after the POA’s were made. The Polish tax authorities considered VAT to be chargeable when the POA was made, with any adjustments to be made once the final margin was confirmed.
The AG confirmed that VAT is due under TOMS when the POA is received, irrespective of the difficulties in determining the final margin at that time.
In the UK, VAT under TOMS is only due once the POA’s reach 20 per cent or more of the selling, unless the date of departure is used. This is the most common practice for UK tour operators.
If the CJEU follow this opinion with the UK tax authorities (HMRC) this could result in removal of the POA concession and alternative tax points, creating additional complexities for UK tour operators. Use of the UK’s provisional percentage and global margin approach may also be revisited.
Both these cases highlight the complexity of calculating the TOMS for tour operators and that the consequences of getting it wrong can be costly, also highlighting areas of difficulty and potential implications for UK travel businesses.
If you would like to discuss the potential implications for your business, please contact Sandy Cochrane.